Responding to last Sunday's Washington Post business column by Stephen Pearlstein on the "Myth of Glass-Steagall," and other similar claims, this Sunday the regular column by Barry Ritholz is headlined "Repeal of Glass-Steagall: Not a cause, but a multiplier." As Ritholz describes it on his blog: "This morning, we push back on the meme that the repeal of Glass-Steagall was not relevant to the overall credit crisis. The impact of the repeal was that banks got bigger, more leveraged more complex. It's a fairly straight forward argument that Glass-Steagall was part of a continuum of radical deregulation that was a major contributor to the collapse."

Excerpts from the column:

"The repeal of Glass-Steagall may not have caused the crisis but its repeal was a factor that made it much worse. And it was a continuum of the radical deregulation movement. This philosophy incorrectly held that banks could regulate themselves, that government had no place in overseeing finance and that the free market works best when left alone. This belief system manifested itself in damaging ways, including eliminating regulation and oversight on derivatives, allowing exemptions for excess leverage rules for a handful of players and creating dangerous legislation.

"As the events of 2007 to 2009 have revealed, this erroneous belief system was a major factor leading to the credit boom and bust, as well as the financial collapse." He goes on to say that he's found no evidence that the Gramm-Leach-Bliley Act was a primary cause of the financial crisis. But after reviewing various elements of the build-up to the crash, he says that "we can say that Glass-Steagall's repeal allowed the credit bubble to inflate much larger. It allowed banks to be more complex and difficult to manage. When it all came down, the crisis was broader, deeper and more dangerous than it would have been otherwise."

The Milwaukee Journal-Sentinel poses the question to readers: "Should Congress pass legislation to reinstitute the Glass-Steagall wall between investment and commercial banking?" and invites letters on the subject. This follows an editorial which states that "A return to Glass-Steagall isn't politically feasible and may be unnecessary. But a tough Volcker Rule is essential."

Restoration of Glass-Steagall was called for in a speech on the House floor on July 24 by Rep. Earl Blumenauer (D-Ore.), who signed on as a cosponsor in late July. After asking how to avoid a repeat performance of the "near-collapse" of the U.S. economy over the past five years, he answered: "Let's begin by reinstating the Glass-Steagall, Depression-era bank regulation that helped promote stability in that industry. It would be a small step in the right direction, a signal that the era of deregulation, unfettered, is at an end." Blumenauer also called for criminal prosecutions: "Sending people to jail will send a message. All of the people in American prisons collectively have not stolen as much with guns as the American public, our pension funds, our businesses lost in the near meltdown of the economy. Every time somebody illegally profits from a financial transaction, somebody else loses. Crooks, whatever the color of their collars, should be held accountable."